How is end of service gratuity calculated in the UAE? Rules and a worked example

According to the u.ae summary of Article 51, a full-time expatriate worker who has completed at least one year of continuous service is entitled to gratuity on termination. Under one year, no gratuity is due. Days of unpaid absence are not counted as service.

UAE nationals are covered by pension and social security legislation instead, and part-time or other flexible work models have their own formula based on contracted hours. This post deals with full-time expatriate employees.

Gratuity is based on the last basic wage the worker was entitled to. Housing, transport, utilities and furniture allowances are excluded.

• 21 days of basic wage for each of the first five years of service
• 30 days of basic wage for each year after the first five
• Part years count proportionately, once a full year has been completed
• Total gratuity cannot exceed two years’ wages
• The employer may deduct amounts the worker owes
• Gratuity and other dues are payable within 14 days of the end of the contract

An employee leaves after 7 years and 6 months with a final basic salary of AED 9,000. For illustration we use a daily rate of basic salary ÷ 30, which is a common practice; confirm the daily rate method with MOHRE or a legal adviser for your own calculations. Daily rate: AED 300.

First five years: 5 × 21 = 105 days. Remaining 2.5 years: 2.5 × 30 = 75 days. Total: 180 days × AED 300 = AED 54,000. The two-year cap is 24 × AED 9,000 = AED 216,000, so it does not apply. If the employee owes the company a AED 4,000 salary advance, the employer may deduct it, leaving AED 50,000 payable within 14 days.

When does the cap bite? Only for very long service. Twenty-five years at AED 9,000 basic would give 105 + 600 = 705 days, or AED 211,500, still just under the AED 216,000 cap. A few more years would reach it. For most SMEs, the cap matters less than getting the basic salary and service dates right.

Employees sometimes expect gratuity on their full package, including housing. Employers sometimes forget that service beyond five years earns 30 days per year, not 21. Both sides sometimes overlook unpaid leave, which reduces counted service. Our view: give every employee a written annual statement of accrued gratuity. It prevents most disputes at exit and forces the employer to keep the figure up to date.

MOHRE also runs a voluntary alternative end-of-service benefits scheme, set up under Cabinet Resolution No. 96 of 2023, where employers pay monthly contributions based on basic salary into approved investment funds. Gratuity earned before joining is kept and calculated to the joining date. If you are considering it, read MOHRE’s material and ask your accountant how it changes the provision in your books.

HelloBooks does not calculate gratuity automatically. What it does is hold the liability correctly: you, your HR provider or your accountant calculate each employee’s accrued gratuity, and a recurring journal books the monthly increase. When someone leaves, the AI agent drafts the settlement entry that uses the provision and records any difference, for you to approve.

Ask the agent “what is our total gratuity provision and how much relates to employees with more than five years’ service?” and it answers from the accounts you have set up. The calculation method stays your decision.